Ron is a member of the Balance Sheet Affluent club. He recently asked: “Is it a good time now to buy a home. . . a foreclosure?”
Memo to Ron:
I guess it all depends on how you define a “good time.” Some millionaires whom I have interviewed constantly have their eyes open for opportunities in the residential housing market. And not just in the down market like we are experiencing today. What is particularly interesting is that there is a highly significant correlation between one’s net worth and the propensity to search for a “bargain home.” As I stated in The Millionaire Mind,
It seems logical to the man on the street that people who have accumulated less wealth would be more careful, more deliberate when purchasing a home, and those with considerable wealth would not have to be as concerned. If they make a bad home-related decision, it’s not going to bankrupt them. In fact, millionaires are much more deliberate in their home-buying process than nonmillionaires. Even among the ranks of millionaires, however, there is an interesting correlation.
Who is more likely to search for a “bargain” home that was part of a foreclosure, divorce settlement, or estate sale – those with net worths in the $1 million or $2 million group or decamillionaires?
More than one in three (36 per cent) of the decamillionaires indicate “bargain shopping” for a home that was part of a foreclosure, divorce settlement, or estate sale. Fewer than one in five (18 percent) of millionaires in the $1 million ot $2 million net worth category indicates bargain shopping for a home in this way.
Note that these millionaires and decmillionaires were responding to questions about searching for a home that they themselves would own and occupy. . . .
It is trendy today to search for foreclosures. And many people have told me that they are in a state of regret for not buying that bargain foreclosure. Are you looking at foreclosures because you think everybody is? Buying a home is a serious business. It is important to do a thorough analysis in your area as well as an analysis of your real goals and objectives when approaching this issue. Even a [supposedly] heavily discounted foreclosure home still has numerous life cycle costs that are never discounted, i.e. electricity, gas, water, maintenance, etc. And don’t always assume that a foreclosure will appreciate significantly in the future. Buy a home if it fits your family needs and budget. If you wish to venture into the foreclosure market you will need a highly skilled, very productive realtor to guide you through the process.
3 thoughts on “Bargain Shopping for a Home”
I bought a home that went through forclosure & ended up on the HUD auction. I’m a single mom with an income of around $35,000 a year so I needed to find a home that would fit my budget & suit my needs.
I followed the recomendation to not spend more than 2 1/2 times my salary for a home so that only left me with $87,500 to work with. There is not much available in that price range where I live, so I knew I would need to purchase a fixer-upper.
It took me almost 6 months to find a suitable home that could be fixed up and stay under my maximum price range. It took me another 7 months to secure financing, get all of the inspections, and get the many contractor estimates in and approved before I could close on the house. After 6 weeks of repairs by the contractors, we were able to move in.
My general contractor asked me if I would ever try to do another project like this again. My answer is yes, absolutely- I have a 30 mortgage at 4.25% for $89,325 on a house with 2 acres that is appraised for $135,000. I have all new energy effiencent doors, windows, HVAC, and insulation, and upgraded electrical & plumbing.
My kids are in a great school district out of the city and we have enough land for a sideline business raising small animals, plants, and shrubs. It has been and will continue to be hard work, sweat, and tears, but the payoff in quality of life has been well worth the investment.
I’ve bought foreclosures in the past for investment purposes, and although the price may be great, you have to be aware that they are sold as is. It’s a method to amass wealth, but is no way “easy.” On the other hand, we recently purchased our primary residence condo in a short sale transaction. Got a good price and expect to live in the home for many years.
It bears remembering that non-HUD foreclosures at auctions where you find the best deals require cash payment, and decamillionaires are risking far less liquidity in a homestead than their 7 figure brethren.